Component 2: the blacklisting system

The blacklisting system is the second foundational piece of the SCS puzzle. While blacklisting has attracted a good deal of attention, it’s poorly understood. But there’s a good reason for that: the system is complicated, and the Chinese government hasn’t provided a clear, concise explanation of what it actually is.

When we hear the word “blacklist”, it’s easy to imagine a single master file of bad actors stored in some secret lockbox.

Thing is, there is no master blacklist. On the contrary, the word “blacklist” is a catchall term for the many hundreds of different lists authorities use to penalize those who are in violation of various regulations.

A few of these blacklists target individuals: There are blacklists for people that default on court-ordered judgements, blacklists for tax evaders, and blacklists for phone scammers, among other things.

The majority of them, however, target companies and organizations. There are hundreds, if not thousands, of corporate blacklists, and more are announced every day. There are blacklists for polluters, blacklists for companies that fail to pay wages, blacklists for disseminating banned content online, for overloaded transport vehicles, for social insurance fraud, and many more. 12

To make things more confusing, blacklists aren’t managed by a central authority. Instead, each government body is responsible for creating and maintaining its own set of blacklists on people and companies within its jurisdiction. The courts, the board of education, the market regulators, the social security regulators, the tax bureau, various departments of the city government of Shanghai, they’ve all got their own blacklists.

The system is, frankly, a bit of a mess. But it didn’t start out that way.

The first blacklist

The first blacklist arrived on the scene in 2013. It was created by the Supreme People’s Court to crack the whip on people and companies who failed to follow through on court-ordered judgements. In other words, you get sued, you’re ordered to pay RMB 1 million in damages, you don’t pay (despite having the ability to do so), and on the blacklist you go. You might also get backlisted for things like failing to make court-ordered child support payments. The people and companies that end up on this list are called “court defaulters” (失信被执行人), more popularly referred to as laolai (老赖).

The court defaulter blacklist still exists today. It’s the biggest and most well-established blacklist in the country, and there’s a public website where you can search through it.

The courts also created a complementary punitive blacklist for those who were barred from luxury consumption of any kind (限制消费人员). Inclusion on this list means you can’t buy plane tickets or high-speed rail tickets, you can’t renovate your house, stay in high-end hotels or send your kids to swanky private schools. It too has a searchable website.

The blacklist system grows

In recent years, more and more state bodies created blacklists of their own, some of which have their own public search portals.

There’s a lot of overlap between these lists. If you’re on the defaulter blacklist, for example, there’s a good chance you’re on the luxury-consumption blacklist; and inclusion on the luxury-consumption blacklist automatically gets you added to the no-fly list and the no-high-speed-rail list as well.

Blacklist party!

These blacklists were implemented around the same time that the social credit system was getting off the ground (2013-2014). As social credit policy has developed, the NDRC (the state body responsible for the implementation of the SCS) has called for the expansion of the blacklist system into other areas of market regulation, urging government agencies to identify more use cases for blacklists and to create more of them: 3

[We urge] various units such as trade associations and chambers of commerce, big data enterprises, financial institutions, news media, social organizations and individual citizens to provide information on the trustworthiness and dishonesty of relevant subjects to the appropriate government departments, [who should] explore and study them as an important reference for the identification of [new] blacklists and redlists.

And boy did they ever. State entities at all levels of government began churning out ever-more-specific blacklists applicable to the businesses and individuals within their own jurisdictions. Some of these newer blacklists only target a certain geographical area, others are national, but only target a certain industry. Here’s a small sample:

Companies and individuals will be blacklisted for “disseminating information that violate social morality, business ethics, honesty, or integrity online” or “intentionally providing technology, equipment, or information services for the same purpose.

You’ll notice that the primary focus of most of these blacklists is on the regulation of malpractice in the business environment, rather than on making sure everyone is a good communist, or some other overtly Orwellian goal.

Implications for companies doing business in China

This proliferation of blacklists means that corporations will need to keep a close eye on existing blacklists that apply to their industries, as well as on new blacklists published by relevant regulators.

Corporate behavior is tied to the behavior of key personnel

One big ‘yikes’: the NCISP database ties the behavior of blacklisted companies to the personal credit of their key personnel, and specifically its registered legal representatives. If a company is blacklisted, its senior management may see their personal credit take a hit, and they may be penalized in a way that causes lifelong career setbacks.10 And blacklisted individuals are barred from holding leadership positions at, or founding, other companies. More on this in the section on Unified Rewards and Punishments.

Implications for companies doing business in China

Chinese policy has made it very clear that the personal records of a company’s legal representative, senior staff, and in some cases, project managers, will be evaluated as part of the selection process during government procurement bids, and the personal credit of management personnel can impact not only the company’s prospects for landing the project, but also the company’s overall credit record.

If this is fully implemented, it’s likely that, over the next several years, credit checks will become a routine part of the hiring process for high-level positions in China.

In a “dark timeline” scenario where blacklisting is capriciously or maliciously applied, this has the potential to be both operationally and ethically problematic, as it may leave companies in a position where they are unable to hire staff who were blacklisted for arbitrary reasons.

In a more benign scenario, credit checks would simply double as a sort of reference check, and would help companies verify that senior managers had not previously been involved in fraudulent activity.

There’s another potential pitfall here: corporate infractions beyond an executive’s control could seriously impact their personal credit and career.

Getting on a blacklist

Even a cursory look at the titles of the major national blacklists show us what kind of behavior regulators are using the system to control. Major blacklist-worthy offenses include: 11

Not honoring legal obligations

Failing to pay employees (especially migrant workers)

Fraudulent financial activity

Tax evasion

Import-export offenses

Endangering public health and safety

Endangering the safety of airline and railway passengers

But this list is set to get much longer as regulators in the fields of medicine, travel, education, sports, agriculture, e-commerce, energy, and others start to create and hone their own lists to discourage behavior like:

Excess energy consumption

Polluting the environment or endangering ecology

Operating without the right licenses

Safety violations and accidents

Counterfeiting, fraud, and IP violations

Poor production quality

It bears pointing out that the blacklisting system doesn’t (usually) create new offenses. Blacklisting happens due to violating existing regulations or breaking the law. What it does add is an extra layer of enforcement to those already in place.

Getting off a blacklist

Chinese regulators are aware that unless there’s an obvious path through which bad credit can be fixed, the whole idea of the SCS falls apart, so recent policies have placed more focus on standardizing the credit repair process, and clarifying rectification procedures. 1213

That said, these procedures are new, and there’s anecdotal evidence to suggest that correcting credit is easier said than done.

The amount of time that one stays on a blacklist depends on the severity of the violation, and the steps that the person or enterprise takes to rectify the underlying issues. In some cases, blacklisting lasts for a year. In other cases, up to five years. And for corporations, in cases where there has been severe endangerment of public health or safety, blacklisting may be permanent.

Enterprise credit rectification

The procedures for rectification differ depending on the severity of the violation. Uncreditworthy corporate behavior is classified under one of the following categories:

Standard uncreditworthy behavior (一般失信行为) – stays on record for 3 months to 1 year

Serious uncreditworthy behavior (严重失信行为) – stays on record for 6 months to 3 years

Extremely serious uncreditworthy behavior (特定严重失信行为) – depends

For the first two, rectification involves a bunch of paperwork, proof that the violation has been corrected, proof that key personnel have completed creditworthiness training courses, and promising not to offend again.

Offenses that fall in the “extremely serious” category may be irreparable, and my lead to permanent revocation of business licenses and operational permits.

Individual credit rectification

Credit awareness among the general public is still very low, and often, people don’t even know they’re on a blacklist until they try to, say, buy a plane ticket and get rejected.

That’s what happened to Zhang Yingjie, the Rongcheng citizen profiled by Vice News whose social credit record was damaged when he co-signed a loan on which the other signer skipped out, and was subsequently blacklisted without his knowledge.14 Zhang eventually dug himself out of the hole by fulfilling the terms of the loan, and doing good deeds as stipulated by the government, like making donations to charitable organizations and donating blood (more on this later).

His story, and many supporting documents, show that this kind of do-gooding is set to become a key component of personal social credit repair nationwide. Credit records can be improved by:

Providing proof that you’ve rectified whatever situation got you in trouble in the first place

Donating blood or bone marrow

Giving charitable donations

Performing “good deeds”

Doing volunteer work

In some cases, the type of volunteer work done to rectify bad credit must be specific to the type of offense committed. A document issued by the Beijing transit authority tells us that those who’ve been blacklisted by the transit authority for causing disturbances on the subway can clear their record by volunteering to: 15

Maintain order within the station and urge passengers to ride escalators, elevators, and trains in a safe and orderly fashion

Provide passengers with advice on boarding, giving directions, etc.

Assist passengers to use the automatic ticket vending machines to purchase tickets, and to use their ticket to enter and leave the station

In terms of the actual procedure for credit repair, individuals can go through the municipal credit bureau, or through the government department that recorded their offense. Same deal if someone feels they’ve been unfairly penalized or blacklisted: an appeal can be made through the local credit office, or through whichever bureau issued the penalty.

Redlists

Where the stick exists, so exists the carrot. Blacklists have a pretty sibling, called redlists. Redlists are kind of like honor rolls. Model citizens and companies with excellent credit records get added to these, and publicly applauded as credit exemplars.

As with blacklists, market regulators are releasing a flurry of redlists that incentivize:

Maintaining “harmonious” labor relations

Good social insurance payment records

Good financial credit

Product or service innovation

Active participation in social charities

Environmental protection and resource conservation

The perks for maintaining good credit and being included on a redlist could absolutely impact a company’s competitive advantage. We’ll cover those in the section on Unified Rewards and Punishments.

Publication of blacklists and redlists

Companies and organizations

Corporate blacklist and redlist data is available to the public via the National Enterprise Credit Information Publicity System (NECIPS) 国家企业信用信息公示系统, a website where members of the general public can search for financial and legal information on any company with a license to operate in China, including local subsidiaries of foreign companies.

NECIPS’s public records include information on key shareholders and personnel, operational licenses and permits, inspection results, notices of company dissolutions, notices of frozen assets, operational irregularities, and any past violations.

The national government, provincial governments, and city governments run a series of websites where blacklists are published.

Individuals

Individual blacklists and redlists are also made available on various government websites, pushed out through official social media channels, and are sometimes displayed in public places, like train stations. We cover the details in our section on Citizen Social Credit.

Further reading

If you want to understand the blacklisting system in more detail, there are two great pieces of research on it: